Issue 120 - March 2018 Special Edition

Fringe Benefits Tax (FBT)

Once again it is that time of year when businesses need to consider if any Fringe Benefits have been provided to employees or their associates. An associate of an employee is their spouse, children, other family members, a related trust or company.

There have been several changes to FBT laws and guidelines for the FBT year ending 31 March 2018, these are detailed below:

Due to the winding down of the 2% Temporary Budget Repair Levy, the FBT rate has reduced from 49% to 47% in the 2018 FBT year. The FBT Type 1 and Type 2 gross up rates which are relevant for calculating the taxable value of benefits have also been adjusted accordingly to 2.0802 and 1.8868 respectively. This change has also impacted on the concessional cap for Not-for-Profit employers which have reverted back to $30,000 for public benevolent institutions (other than hospitals) and rebatable employers and $17,000 for hospitals and public ambulance services.

The cap for salary packaged entertainment remains at $5,000.

Other rate changes include the car parking threshold, statutory benchmark interest rates, and reasonable food and drink amounts for Living Away From Home Allowances.

Where businesses provide car benefit for fleets of 20 cars or more, the ATO now allows you to apply an average business use percentage based on log books prepared for at least 75% of the cars provided. There are other conditions for using the safe harbour and it's only available using the operating cost method.

Ever since the introduction of Fringe Benefits Tax (FBT), many businesses and tax payers have merrily gone along believing that utility vehicles are exempt from FBT and all expenses are fully tax deductible.

The reality is the legislation and commentary has always provided this to be the case, but only where the non-business travel is home to work, work to home and there is only minor and incidental private use (i.e. the quick trip to the local shop, down to the dump, etc).

The ATO recently published a fresh draft guidance indicating that its view of minor and incidental travel is no more than 750 private kms in the year and no more than 200kms for any single private return journey. The effect of this change is that employees will need to sign an annual declaration confirming that their private use of the vehicle met these conditions, or alternatively log books will now be required for utes. In addition to this, businesses are required to take all reasonable steps to limit private use of the vehicle and have measures in place to monitor private use.

We note that travel between the employee's home and work is not considered private travel unless there is a diversion from the regular route which adds more than 2kms to the journey. However, if this threshold is breached the whole provision of the vehicle could be subject to FBT and require a log book to minimise tax. Under the log book method, home to work travel is generally considered private unless strictly required (i.e. to transport bulky tools).

There is no doubt that the proliferation of SUVs and utes with all the mod cons in recent years has caught the ATO's attention.

The matter is not completely settled as yet, but this is a timely heads up to review your situation and contemplate the best steps forward. Potential courses of action may include the following:

Implementing policies to require log books to be completed for all utility vehicles;

Implementing policies to restrict private use of utility vehicles;

Implement policies to review and monitor private use of utility vehicles; and

Consider a switch to lower cost vehicles (noting a ute might well be the only practical option).

* Please note that the above advice applies to taxis, panel vans or utes designed to carry a load of more than one tonne and any vehicle designed for more than 8 passengers.

Please find below a questionnaire designed to check if you have provided any of the following fringe benefits during this FBT year (1 April 2017 to 31 March 2018). Please note that this is not an exhaustive list but covers the most common types of fringe benefits provided to employees.

Motor Vehicles

Do you provide motor vehicles that are available for personal use by staff (or their associates)? This includes driving to and from work.

We recommend that all motor vehicles provided (even by way of novated lease) have an odometer reading taken as at 31 March 2018.

Yes

No

Car Parking

Did your organisation provide car parking facilities to an employee (or their associates) at a commercial parking station?

Did your organisation provide car parking facilities to an employee (or their associates) at, or in the vicinity of, your business premises and is the income of your business more the $10 million (GST exclusive)?

If yes, is there a commercial parking station located within 1km of your premises and does the commercial car parking station charge members of the public more than $8.66 for all day parking, and is the car parked on the premises for more than 4 hours between 7am and 7pm?

(Some employers such as charities, public educational institutions, government bodies may be exempt)

Yes

No

Loans

Did your organisation lend any money to an employee (or their associate)?

Is the rate of interest being charged less than 5.25%?

Some examples include advances of money, the provision of credit or the payment of an amount where there is an obligation to repay the amount.

Yes

No

Goods Provided

Did your organisation provide goods to an employee (or their associate) for free or less than market value?

If the items are provided infrequently, irregularly and are valued at less than $300 (GST inclusive), you may be entitled to an exemption.

Yes

No

Eligible work related items provided to employees and used by that employee primarily for employment related purposes are exempt from FBT.

The ATO has previously disallowed the exemption for eligible work related items on any further items provided during the FBT year with substantially identical functions to a previously provided exempt item (unless the original item was lost, stolen, destroyed, or outdated due to technological developments).

This exemption is now being expanded to allow more than one portable electronic device to be provided to employees of Small Business Entities (with grouped turnover of less than $10 million per annum) per FBT year, even if the items have identical functionalities.

Entertainment

Do you provide any form of entertainment to an employee (or their associate)?

Some examples are:

Business lunches and drinks, staff social functions such as Christmas parties, Friday night drinks, tickets to sporting events and theatre, accommodation and travel in connection with entertaining clients, games of golf or similar leisure activities.

If the entertainment is provided infrequently, irregularly and valued at less than $300 (GST inclusive), you may be entitled to an exemption.

If food or drink is provided to and consumed by a current employee on a working day on the employer's business premises (e.g. Friday night drinks), you may be entitled to an exemption.

Yes

No

The following items are not entertainment:

Tea, coffee and other such amenities provided on business premises.

Light refreshments on business premises such as morning/afternoon teas or meals (not including alcohol) in connection with meetings, training sessions, or overtime work.

Food and drink provided during a conference and accommodation for a conference.

Other

Did your organisation provide any other type of benefit to an employee (or their associate) which has not been disclosed above (e.g. any assets available for private use or services provided)?

Yes

No

Did your organisation provide accommodation to an employee (or their associate)?

Did your organisation pay an allowance to any employee as compensation for living away from home?

Did your organisation pay for any expense (e.g. fuel, subscriptions to clubs, rent on accommodation, private telephone) on behalf of an employee (or their associate)?

Did your organisation reimburse an employee (or their associate) for any private expenses (e.g. restaurant meals)?

If you answered YES to any of the above, please contact our office so we can assist in determining if you have provided any fringe benefits.

If you are already registered for FBT we will be sending out our customised checklists.

Disclaimer

The information provided in this questionnaire does not constitute advice. The information is of a general nature only and does not take into account your individual circumstances.
We recommend that you contact Brentnalls SA to discuss your particular requirements or circumstances.

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